Feature

The Show's Just Gettin' Started at Ryman

The owner of the Grand Ole Opry and other country-music assets has become a REIT, with over 90% of its revenue coming from four giant hotel resorts. One hedge-fund manager sees a 25% upside to the stock.

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To country music fans, Nashville's Ryman Auditorium is hallowed ground. The former church, with its pew seating, stained-glass windows, and preternatural acoustics, was until the 1970s home to the Grand Ole Opry, where Hank Williams, Johnny Cash, and Patsy Cline strode its wooden stage on their journey to music immortality.

But since last fall, the Ryman name lives not just as a performing venue but as a listing on the New York Stock Exchange. That was when Gaylord Entertainment began its transformation into a real-estate investment trust called
Ryman Hospitality Properties.
rhp -0.5945774536229587%Ryman Hospitality Properties Inc.U.S.: NYSEUSD62.695
-0.375-0.5945774536229587%
/Date(1481307301662-0600)/
Volume (Delayed 15m)
:
43419
P/E Ratio
21.508246082255525Market Cap
3216948437.15485
Dividend Yield
4.772510340439071% Rev. per Employee
1530230More quote details and news »rhpinYour ValueYour ChangeShort position
The new company still owns the fabled entertainment assets—the auditorium, the Grand Ole Opry (nowadays in a larger hall), and the famed AM station WSM, which on some nights can beam country and western music all the way to Canada—but Ryman now generates over 90% of its revenue from four giant hotel resorts that boast over 7,000 rooms collectively. Individually, they comprise four of the nine largest convention hotels in the U.S.

The stock (ticker: RHP) already has moved up nicely from $31 in early November of last year, when the company announced a $310 million distribution of cash and stock to shareholders as required by the REIT conversion, to a recent price of about $40.

But some smart money investors, including respected value players like Columbia Wanger, Mario Gabelli's Gamco Investors, and Fred Alger Management, seem to be betting on more upside. A hedge-fund manager, a veteran of many REIT conversions who wishes to remain anonymous, takes us through the math of his bullish bet.

Moreover, the fund manager expects Ryman to pay a dividend of about $116 million this year, for a yield of over 5% compared with most hotel REITs' 2% to 3% yield.

By his calculation, the inevitable closing of the valuation gap would argue for a Ryman stock price of between $54 and nearly $58, some 35% to 45% above the recent price. And that price range doesn't account for another potential catalyst, the eventual spinoff of Ryman's entertainment assets, which throw off less than 10% of the REIT's revenue but have undeniable cachet. "Country music is really on a roll these days, and the spinoff of the auditorium and Grand Ole Opry and perhaps the radio station could be huge for Ryman shareholders," says Gabelli gaming, lodging, and restaurant analyst Amit Kapoor.

INVESTORS MAY LIKEWISE be missing the fundamental change in Ryman's corporate structure that the REIT conversion represents. Now the company is almost purely an owner of hotel real estate, having sold to Marriott the management rights to its four major properties—megahotels in the Nashville, Kissimmee, Fla. (near Disney World), Dallas, and Washington, D.C., areas—as well as a smaller overflow hotel in Nashville. The company also is getting out of the resort-development business, preferring to expand by acquiring convention-hotel venues rather than spending billions to build new ones.

The Bottom Line

Ryman shares have made a strong start since the company became a REIT last fall, but they still could rise at least another 25% while offering a yield of more than 5%.

There are several advantages to the new strategy, according to Ryman Executive Vice President Mark Fioravanti. Allowing Marriott to manage its properties already has resulted in a $35 million to $50 million cost savings, net of management fees, he says. In addition, Marriott's strong ties to corporate clients and its inclusion of Ryman in its rewards program yield stronger bookings for the REIT.

Likewise, property development at predecessor Gaylord added risk that hurt the stock's multiple. No longer will the company's debt leverage rise and fall dramatically with each new resort-construction project over the typical five-year gestation period. "Through acquisitions, we will be able to generate cash flow on new projects from day one and not periodically overburden our balance sheet," says Fioravanti.

Ryman represents an almost pure play in group-oriented destination hotels—the so-called meetings, incentives, conferences, and events niche. About 80% of its business comes from corporations and associations, which tend to book up to three to four years in advance. Its revenue per available room is boosted by all that the company earns from food and beverage, entertainment, conference-room and retail-store rental and other "outside the room" business it garners.

All of these attributes have helped push the shares up; but, to paraphrase Kenny Rogers, it's smarter to "hold 'em" than "fold 'em."